‘Tis the season for giving. This is the number one time of the year for charitable giving not just because of the holidays, but it is the last few days to get that needed tax deduction in. With careful forethought, your gifts can help you in the tax and estate planning portion of your financial life.
Keep your cash. The first strategy is to give away those highly appreciated assets that you want to take profits on. Give the asset, a stock or real property, to the charity of your choice and let them convert it to cash, so you avoid a taxable event. Use your cash to start a new investment with a new cost basis.
If you want to give a bigger gift to your favorite charity than you can afford now - buy a life insurance policy on yourself for the organization. This strategy allows you to leverage your money for the benefit of the organization. You can fund the policy every year with a cash gift or a single premium immediate annuity or a single premium life policy. One can leverage their gift by 2 to 3 times in this scenario.
Suppose you need that highly appreciated asset for your retirement income. One could gift the asset to a charitable remainder trust. Let the trust sell the asset and pay an income for life to you and your spouse. At the donor’s death their charity receives the “remainder”.
Setting up one’s own “foundation” used to be only for the ultra wealthy. Now a person can set up their own philanthropic entity through a donor-advised or community foundation. These are umbrella organizations that fall under a non-profit 501(c) 3 charitable status of a parent charity. The parent charity makes certain all the non-profit rules are adhered to. The donor funds their “donor family community foundation” through any of the means above and gifts the money out as they see fit to 501(c) 3 organizations according to IRS guidelines.
Please remember no two individual’s situation is the same and with any area of law and tax one should seek input from their legal and tax adviser.
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